Giordano's minority shareholders receive up to 1.5 billion as the first regulatory settlement; analysis: may become an important reference in the future

The Securities and Futures Commission (SFC) recently announced that it has reached a settlement agreement regarding the violations by the agent of Chow Tai Fook and its concert parties in the trading of Giordano (709) shares. According to the settlement, the two companies agree to pay cash compensation to the independent shareholders affected at the time, with a maximum amount of approximately HKD 1.5 billion. Securities industry analysts indicate that this settlement sets a precedent, allowing the SFC and the parties involved to avoid lengthy legal procedures while providing investors with a satisfactory compensation plan when consensus on disputes cannot be reached. On Monday (16th), the SFC stated that the relevant concert group of Chow Tai Fook's agent exceeded the 30% threshold in Giordano's equity on May 18, 2016, triggering the obligation to make a mandatory offer at HKD 3.6 per share, but failed to fulfill this obligation, violating Rule 26 of the Code on Takeovers and Mergers. Additionally, Clear Prosper announced a voluntary general offer for Giordano at HKD 1.88 per share in June 2022, but announced the offer's invalidation on September 13, 2022, despite the only condition of the offer having been met, which the executives believed violated Rule 5 of the Takeovers Code. According to the settlement agreement, Huafu and Clear Prosper will compensate independent shareholders who held Giordano shares in 2016 and 2022, with shareholders from 2016 receiving a cash payment of HKD 0.996 per share, and shareholders from 2022 receiving HKD 0.412 per share. Related article: Chow Tai Fook's agent settles with the SFC, maximum payment of HKD 1.5 billion involved in Giordano share trading dispute. Chow Tai Fook's Agent Insists on Denial The dispute primarily revolves around the disagreement between the two parties on the definition of "concert parties." The SFC cited the famous case of Guinness acquiring The Distillers Company in 1987 in its statement, indicating that the determination of concert parties typically relies on circumstantial evidence rather than direct evidence, and no single circumstance is necessarily decisive. The SFC believes that the two companies holding Giordano shares and the Chow Tai Fook agent group are concert parties, while the Chow Tai Fook agent side insists on denying the matter. However, since the matter reached a settlement before entering formal adjudication procedures, it is expected that no individuals will be formally criticized or reprimanded by the SFC. Furthermore, the cash compensation will be borne by Huafu International and Clear Prosper as shareholders and will not affect Giordano's financial status. Analysis: Avoiding Lengthy Judicial Procedures Wu Li-hsien, a securities strategist at Everbright Securities International, stated that this settlement is a good precedent, allowing the SFC and the parties involved to achieve better outcomes without going through additional legal procedures when consensus on listing rule disputes cannot be reached, which is also a good solution for investors. Other analyses suggest that the early settlement allows the relevant companies to avoid the chain risks of massive legal expenses, stock price fluctuations, market skepticism, and reputational damage that could arise from entering formal legal procedures, thereby protecting the normal operation and long-term stability of the business while also safeguarding the interests of small shareholders Resolving differences in a pragmatic manner can encourage listed companies to actively communicate and comply; it also helps listed companies, intermediary institutions, and regulatory bodies to form clearer behavioral boundaries, reducing potential disputes arising from differing interpretations of rules in the future. In fact, the Securities and Futures Commission also stated in a press release that the recent settlement agreement with Hua Fu International and Clear Prosper was primarily based on the decisions made by the Takeovers and Mergers Panel regarding the lack of comprehensive offer responsibilities in the past, the specific facts and circumstances of this case, and the time and costs required for a formal hearing, believing that this approach is in the public and investors' interest